Brief History of Bayerische Motoren Werke: BMW, a German company is a producer of automobiles and motorcycles.

Designed as an aircraft manufacturer and originally founded in 1913 by Karl Fredrich Rapp, the company was commissioned to build the V-12 engine for Austria-Hungary. In need of extra financing, Rapp reconstructed the company as the Bayerische Motoren Werke. In 1917, Rapp left the company and it was taken over by Austrian Franz Josef Popp who later named it BMW. BMW continued their endeavors in producing for the German panzer (airplane) and the motorized division of the German air force. It was not until after the World War that BMW was banned from manufacturing for three years. In 1952, they began manufacturing automobiles. In 1959 BMW found them in a tough financial situation, as they almost had to sell their interests to Daimler-Benz, the number one auto producer as well as their number one competitor. However, with the opposition of the workforce and labor unions as well as an individual named Herbert Quant, shares were increased by 50% and the company did a turn-a-round. As recently as 2004, revenues for BMW were $44 billion dollars with an employee base of 105,972 (HBR 2004). Today, BMW accounts for 10% of the market share with 70% of their sales from Europe and 30% of sales from United States and Japan. These figures equate to the success of BMW and have helped them gain brand recognition as the Ultimate Driving Machine. A 1. What are the causes and consequences of Bmws quality problems with newly launched products? What should be done to improve launch quality? The development and launch of a completely new or redesigned model line was a complex, timeconsuming, and expensive undertaking for BMW. Stylists in Bmws design studios began exploring various alternatives for the cares exterior appearance six years before the scheduled introduction. BMW typically spent two years in styling (with less concentration on quality), longer than most other automobile companies, and far longer than the six months typically spent by the Japanese luxury carmakers. It can be said that some of the causes of the quality problems originated with the competition of Japanese automakers. When Japanese entered the market they concentrated on quality and excellent reliability (more practical for everyday use) for their automobiles along with a lower price tag and shorter production time. In fact, BMW is known to spend $40-50 million dollars on design quality for only one of their models, while Japanese car maker Toyota distributes $20 million on design quality for all their models. From 1970 to 1990, sales volume of BMW grew by a factor of 15, and car production grew from 160,000 to 500,000 units/year. As stated in the study guide, the worlds 16th largest carmaker held 1.5 % of the world market: By the late 1980s, new competition began to challenge the European high-end producers. In 1986 Honda introduced Acura, in 1986 Toyota (Lexus) and Nissan (Infinity). By 1990, Hondas Acura and Toyotas Lexus were consistently topping the J.D (Power Surveys on Customer Satisfaction and Initial Quality in text book). Also, Japanese automakers increased competitiveness in the U.S. luxury car market.

Between 1986 and 1989 their share jumped from 1.9% to 11.8%, while European share fell from 29% to 22% (textbook). After clay models and drawing were evaluated, BMWs management would give final approval to the overall style and product concept. Product engineers then translated the product concept and style into a vehicle with the specified characteristics. A vehicle under development was divided into 30 major modules. An interfunctional team from design, product engineering, production engineering, prototyping, vehicle testing, procurement, manufacturing, and other functions was responsible for each module of the car from start to finish. Because the productengineering phase was so complex, it proceeded through a series of cycles, each of which involved design, the building of prototype cars, and the testing and evaluation of prototypes. New products typically passed through three to five design cycles. Between three and five batches of full prototypes were constructed during the entire developmental cycle. Prototypes were hand-built by highly skilled craftsman in BMWs prototype shop at the Design and Engineering Center. Rarely were any prototype parts made from actual production grade tools, which could cost from five to ten times more than preproduction grade tools. BMWs approach provided maximum flexibility within the design cycle. Design changes were made relatively late in the cycle if top management believed those changes were desirable. BMW carefully managed the transition from final prototype to high volume production through three phases: 1) pilot production in the Engineering Centers pilot plant, 2) pilot runs in the factory, and 3) gradual ramp-up to full-scale manufacture. Nine months prior to launch, pilot assembly began in the Research and Engineering Centers small pilot production facility. During pilot production, workers learned about the assembly process and uncovered problems with tooling, parts, and assembly procedures. Thousands of minor problems would be uncovered and investigated. In response, procedures, tooling, and part designs had to be modified. Once the process was debugged, pilot production was transferred to the factory where the new model would be produced. An initial run of 25 cars was made, followed by a final pilot run of 60 cars. This was supposed to be the last opportunity to fine-tune the process, change tooling, and trouble-shoot. If no major problems were uncovered in the final pilot runs, commercial production would be authorized. To better utilize the high fixed costs of the plant, BMW decided, for some models, to maintain production of the old model until production of the new model could be brought up to full-volume. During this six-month transition, new models would be interspersed with old models along the assembly line. While the mixed-model ramp-up permitted better utilization of fixed assets, it caused greater confusion and made logistics more complex. Further complicating ramp-up was the fact that not all potential production problems were discovered or solved during pilot production. BMWs

response was to assign additional engineers to help fine-tune the process and, if necessary, redesign parts. This approach was costly and some within BMW were worried that the current start-up process was incompatible with BMWs future manufacturing strategy, which involved more automated, flexible, and sophisticated plants. Despite intensive inspection and rework, the incidence of BMW customer complaints about new models was higher than what was becoming the norm in the market. To improve launch quality, BMW could cut production time from six months to three months if more of the many minor production and quality problems were solved earlier in the production process. Currently, in BMWs pilot production, time is spent identifying and solving the bigger issues. Unfortunately, by the time BMW solves all the big problems, they dont have much time left for fine-tuning many of their minor problems (Professor mentioned in class that BMW accounted for approximately 500 problems with the quality of their cars), which are dealt with in production. It seems that the efforts put into BMWs design stage were not carried over and executed in the production stage. Additionally, their prototypes were not a good representation of the actual model. Designers and engineers did not thoroughly communicate through these processes; it seemed that designers slowed down the process as they concentrated on aesthetics. Additional ways they can improve on the above: There should be more time in design, using all divisions in the corporation. In the past, the emphasis was to not rely on the production staff, but to rely on the engineers to produce the prototype. There should be more involvement from the production line workers as well; they should continue to test the prototypes making sure that there is feedback early in the process to avoid backtracking in manufacturing process. Also, they should involve vendors and suppliers at an earlier time; this could save considerable time in the production of the pre-production tools. Further, they should not waste time trying to mix-model production; there seems to be too much confusion with this approach. The down time in retooling the facility will hopefully be made up with the saved time from the design floor. 2. What are your recommendations to Carl-Peter Foster concerning the 7-series prototypes? What should he do regarding future development projects? It is recommended that pre-production tools should be used in the first prototypes of the development cycle and the prototype should be designed with more use of technology, equipment and workers from the factory (CAD machines can speed up the design and use less man-hour). Good launch quality starts in the development process. While there are many aspects of development that can affect quality, focus should be centered around this prototyping process. If BMW uses pre-production tools in early prototyping, they can learn about the part much earlier and if a problem or defect with the tool design, the part, or the process exists, BMW would still have enough time to correct the problem before actual production starts. Mr. Foster should involve suppliers and vendors in both design and prototype. Suppliers may see problems in the production process and with parts that are missed. If suppliers have an integrated

role in the design of prototype parts, they may be able to make more crucial decisions that can prevent future mishaps in the production process. For future development projects, Foster should evaluate the product layout. A product layout is one in which equipment or work processes are arranged according to the progressive steps by which the product is made. The path for each part is, in effect, a straight line. In product layout, equipment or departments are dedicated to a particular product line, duplicate equipment is employed to avoid backtracking, and a straight-line flow of material movement is achievable. Adopting a product layout makes sense when the batch size of a given product or part is large relative to the number of different products or parts produced. 3. What changes would you recommend in the way BMW develops new models? What attributes of newly launched products would you expect to improve as a result of these recommendations? Which attributes might deteriorate? More use of technology and equipment. Use CAD (Computer Added Design) could greatly improve quality and consistency; one of the advantages of using CAD is ease of use and design change. The time and effort for redesign will greatly improve the overall production process with far less costs and will also help prototypes better represent the actual model of the car. More outsourcing. It may lead to layoffs, but it is essential that the company rely on its external sources for parts and rely less on more investment in the companies own capital to improve equipment line. Better use of pre-production tools. The pre-production tools are an expense that would be more productive if they could be used more often. Early tooling should also be implemented; this would be an eventual cost saver. If early tooling was used it could save the corporation millions of dollars. There should be preventive quality measures that could save money and time in re-tooling. With any attribute, the issue of time will come into play. The continued use of technology and having the ability to change with the times will lessen the impact of an attribute deteriorating. It must only be changed in a cost effective manner. When developing new models, BMW should consider using their new approach in fabricating components of their products by outside suppliers using more automated methods, and more specialized tooling. Single suppliers would then construct major elements and ship them to BMW where they would be assembled into prototype vehicles on a pilot assembly line. The new approach, despite its higher tooling costs and longer lead times, could drastically reduce the problems associated with bringing a new model intro production and have a dramatic impact on product quality at launch. Attributes which might deteriorate using this approach would include the ability to make changes in the design relatively late in the design cycle.

4. What recommendations would you make to chairman Von Kuenheim regarding BMWs strategy to compete against new Japanese entrants into the luxury car markets? In the past, BMWs launch quality had always been on par or better than that of its major competitors, but the entry of Japanese competitors into the luxury segment has changed the standard for what is considered acceptable quality. In order to be competitive against new Japanese entrants into the luxury car markets, BMW needs to focus its attention on technology and quality. Technology has played a dominant role in the productivity growth of most nations and has provided the competitive edge to firms that have adopted it early and implemented it successfully. Given the complex nature of technology, total commitment of top management and all employees is critical for the successful implementation of new technology. BMW must actively seek the best and the brightest talents in the industry, this will give them a competitive advantage. BMW must also commit to a reduction in the time it takes to design and build a new series. A series that takes 6-8 years to design and build is simply too long; they must cut down time in order to stay more competitive with Japanese car makers who usually take 3-4 years to design and build. With the use of technology and innovative methods of production, BMW can and will cut down the design and production times. Quality assurance must start at the design phase go through the prototype phase and make its way through the production phase. Quality issues are essential in BMWs quest to be a world leader in the auto industry. Cost cutting efforts, such as suppliers being involved in the design, use of pre-production tools, outsourcing and lead times will all account for better use of production costs.